Watson to Save the Day: How the Jeopardy! Genius Could Solve the Risk Management Dilemma

Posted on February 16th, 2011

Editor’s Note: Congratulations to Watson on winning Jeopardy! this week. As indicated by the recent announcement of a research agreement with Nuance Communications Inc. in the Wall Street Journal, Watson’s next task will be to improve Health Care services. Katharine Frase, an IBM researcher undertaking development of Watson’s business applications indicated the expansion of Watson to ‘other uses such as call centers, knowledge management and training of new employees in technical fields, financial sector applications and law.

This past Monday, the IBM computer program Watson began a three-day battle against human contestants on the ever popular show of smarts, Jeopardy! While battling Watson may make most reminiscent of the talents of supercomputer, cousin Deep Blue, this technological advancement also implies a variety of applications for industries other than computing.

Watson, which operates on a database and decision making platform that has the capability to learn, could possibly simplify risk management for financial institutions. With banks running a variety of complex models to streamline risk management every day, it’s hard to pinpoint the most appropriate financial decision due to a lack of real-time analysis. Most of these models rely on discontinuous sets of data with often subjective assumptions which can lead to a large amount of uncertainty.

If a financial institution could harness Watson’s computing power, it could determine the proper actions as they happen. Watson has the ability to analyze multiple scenarios, many broader, more impossible and complex than those able to be executed on the average statistical model. This invaluable insight, as an American Banker article notes, would provide “visibility into concentrations of risks and risk-related activities, as they happen,” while “selecting both the statistically and operationally important scenarios.”

With the mass amounts of data available and small windows of opportunity in which it can be processed, Watson could prove an invaluable asset to the financial community.